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Whether you’ve got an idea or MVP and are actively seeking financing or have just started out along your journey, its important to know what investors will ask you and why investors ask the types of questions they ask.
If a founder is not prepared in answering these questions about their business, the likelihood is, he or she will struggle to raise any investment.
Founders, use this list as a preparation tool for pitching to investors. Investors, ask these question to really understand about a start-up.
Stage of investment is an important factor to the type of questions an investor will ask so I will split this into three separate stages.
At the Pre-Seed stage, it can be tricky to engage with VCs as many of them will likely take a meeting with you to "build a relationship" but ultimately your company will be too early for them. This is one of the biggest issues we have set out to fix in the industry at Concept Ventures. If you are raising your first round, you will never be "too early" to pitch to us. Get in touch with one of our team members if this is the case! Trying to build momentum for your round at this stage can be important and the best route to do this typically is by approaching angel investors who are willing to take a punt on you and your co-founding team. If you have previously exited your own start-up, this probably doesn’t apply to you as much. Founders with a proven track record likely have an unfair advantage in their networks and ability to go out and raise a larger round. But for many going about their first start up, it’s important to make a good impression on the angel investors and potential VCs you might meet.
Once you’ve perfected your pitch, the first thing you need to do before sending out hundreds of cold emails to angel investors or VCs is utilise your network to the best of it’s ability. Ask family friends and old school mates for warm intros. Whilst people are open to cold emails and in some instances they can be really successful (30% of our deals last year came from cold inbound or outbound), a warm introduction to you and your business opportunity is incredibly valuable in terms of building trust before even entering the meeting.
Now, before getting to that meeting. Prep. Use these questions as guidance.
Understand that investors at the Pre-Seed stage are essentially investing in you. All other factors are supplementary to the fact that you as an individual are able to execute what you plan, given the money you will need from the investors.
At this point as a founder, you should have an MVP or at least a prototype of the product/service you will be selling and some level of traction. Investors at this stage want to know that demand for your product exists and that people are willing to pay.
Now is a good stage to start strategically approaching seed stage VCs and strategic investors about the opportunity to scale your start-up further. One important tip when reaching out to VCs/CVCs is to do your research on them beforehand. Understand if they are the correct investor for you and crucially know whether they even invest in your specific area!
I left product type questions out of the pre-seed stage because the truth is your product will likely iterate numerous times before reaching the seed stage (and numerous times after) but at this point you should be gaining some traction from whatever sort of beta type product you have.
(some questions will reoccur — improve your answers as you learn more about your start-up)
First off, if you’re at this point, congrats. You’re in that 20% of startups that make it from Seed to Series A. You are ready for high growth. (Hopefully) You have found product market fit and are only looking to scale. You have proven to investors that you are able to attract a significant amount of paying customers and are doing between $1m-$3m ARR.
Now, it’s all about the product/offering, how customers interact and whether or not you actually have a profitable business in the long run.
Below I’ve listed the metrics VC’s care about and any other questions they may ask that are relevant. Truth is, the significance of these metrics varies in relation the the type of business you are running.
If you are a founder/VC/investor and are keen to get in touch, reach out to one of the team members or apply for funding
